MONEY AND CREDIT
Double coincidence of wants is an essential feature
When both parties have to agree to sell and buy each others commodities. This is known as double coincidence of wants. What a person desires to sell is exactly what the other wishes to buy. A barter system has deficiencies.
1. Barter exchanges become extremely difficult in a large economy because of the high costs people would have to incur looking for suitable persons to exchange their surpluses 2. It is difficult to carry forward one’s wealth under the barter system. Importance of money/Money as medium of exchange.
Money acts as an intermediate in the exchange process, it is called a medium of exchange. 1. It is also acceptable to anyone at any point of time. Thus money can act as a store of value for individuals 2. It is universally acceptable and hence can be exchanged for other commodities very easily. 3. Money in a savings account in some bank you can earn interest on that money. 4. Wealth can be stored in the form of money for future use. 5. Money also acts as a convenient unit of account. The value of all goods and services can be expressed in monetary units, where a unit of money is rupee.
Rupee accepted as medium of exchange-/Role of RBI in issuing currency. Modern forms of money include currency — paper notes and coins. Rupee is accepted as a medium of exchange because the currency is authorized by the government of the country. In India, the Reserve Bank of India Issues currency notes on behalf of the central government. As per Indian law, no other individual or organization is allowed to issue currency. The law legalizes the use of rupee as a medium of payment that cannot be refused in settling transactions in India. No individual in India can legally refuse a payment made in rupees. Hence, the rupee is widely accepted as a medium of exchange. Imp of demand deposits- Why are demand deposits considered as money? Demand deposits share the essential features of money-
People hold money is as deposits with banks. They deposit it with the banks by opening a bank account in their name. Banks accept the deposits and also pay an interest rate on the deposits. -people’s money is safe with the banks and it earns an interest. People also have the provision to withdraw the money as and when they require. Since the deposits in the bank accounts can be withdrawn on demand, these deposits are called demand deposits. It is this facility which lends it the essential characteristics of money (that of a medium of exchange). Demand deposits are accepted widely as a means of payment, along with currency, they constitute money in the modern economy. Payment can be done through cheque, ( a paper instructing the bank to pay a specific amount from the person’s account to the person in whose name the cheque has been made). the payer who has an account with the bank makes out a cheque for a specific amount. The money is transferred from one bank account to another bank account in a couple of days. The transaction is complete without any payment of cash. The facility of cheques against demand deposits makes it possible to directly settle payments without the use of cash. The modern forms of money — currency and deposits — are closely linked to the working of the modern banking system. Currency in form of rupee is acceptable to anyone at any point of time. It is universally acceptable and hence can be exchanged for other commodities very easily. In India, the Reserve Bank of India Issues currency notes on behalf of the central government. People hold money as deposits with banks. They deposit it with the banks by opening a bank account in their name. Banks accept the deposits and also pay an interest rate on the deposits, people’s money is safe with the banks and it earns an interest. Deposits in the bank accounts can be withdrawn on demand; these deposits are called demand deposits....
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